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Lease-to-purchase financing

Published: 24/08/2011 10:40:00 AM GMT
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I wish to buy a home on the basis of a lease-to-purchase model whereby the finance company buys the property with you and agrees to sell you their share over a period of time. The monthly payment due on the house is calculated on the basis of two things: the price that the buyer must pay to fully purchase the home and the rental value of the home. Once the payment is calculated and agreed upon, they use the traditional documentation (note and deed/mortgage) that are commonly used in the industry. In order to comply with legal requirements and industry practices, the home is registered in you name as owner, and the company is registered as lien/mortgage holder. Does this contract involve any interest? If yes, then why?


Answered by

Sheikh `Abd Allah b. Ibrâhîm al-Nâsir, professor at King Sa`ûd University

If the company requested to make the purchase goes forth and buys the item and assumes full legal possession of it, then resells it through installment payments to the customer with a separate contract that puts the product under mortgage – meaning that the item has been placed under mortgage pending payment of the full agreed-upon price to the company – then this contract is legal.

It is worth noting that the agreement between the customer and the company upon contracting is for the ultimate final sale and is not contingent on other conditions. It is, in effect, a sales contract placing the item under mortgage for its value, which is legal. As for calling it “lease to purchase”, this is irrelevant, because the effects of this contract are those of a sales contract and not a lease agreement. The most important considerations in dealing with contracts are their actual meanings and implications, not the words and phrases used to convey those meanings.

Source: Islam Today




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